Of course it is. Energy, and gas in particular, Europe got about 40% of its gas from Russia before the invasion, is Russia’s most powerful response to the West’s severe financial and economic sanctions.
Arming energy hurts European economies and creates a divide between those European states, usually in southern Europe, which are not as dependent as Germany, which used to get 55 percent of its gas from Russia, and the economies of Eastern Europe.
The president of the European Commission, Ursula von der Leyen, has accused Russia of blackmail. Credit: Bloomberg
Putin is toying with Europe by leaving his intentions vague. It might completely cut off Europe’s access to Russian gas, or it might not. It could allow a gas surge or it could return the supply to 40 percent capacity.
Russia is unlikely to completely shut down Nord Stream 1 because that would destroy Putin’s power and the value of the uncertainty he has created. It would also generate greater unity between states that have historically been dependent on Russian gas and those that have alternative sources of supply.
Russia would like to increase the divisions and tensions within Europe generated not only by the energy crisis but, in general, by the differences in attitudes towards the invasion.
The Europeans have been forced to respond to the bleak energy outlook for their winter, agreeing on Tuesday to a voluntary reduction in the European Union’s gas consumption during the northern winter. The reduction could be made mandatory in an emergency, if Russia, for example, shut off the supply completely.
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There are exemptions and/or minor cuts within the agreement for countries that are particularly dependent on Russian gas, as well as for those that are more self-sufficient.
News that Russian supply would be limited to 20 percent of capacity sent European gas prices soaring this week, with the price rising 20 percent on Tuesday. European gas prices are now more than 10 times higher than the average of the previous decade.
The reduction in flows and the rise in prices will affect European economies that are already sliding into recession.
They will especially affect Germany and German industry because the Germans had shut down most of their coal generators and planned to shut down their three nuclear reactors later this year. They depended on Russian gas and renewable energy to fuel Europe’s strongest economy.
European households and industries face energy shortages ahead of the northern winter. Credit: AP
Now they are bringing coal plants back into their grid and even the powerful Green party, which led the campaign to phase out Germany’s nuclear plants a decade ago, is willing to consider keeping at least one of the plants aging nukes in operation beyond the end. of the year
In the short term, Russia’s cutoff of its gas supply to Europe will hurt European economies – a complete cut is estimated to wipe out around 1.5 percentage points of EU GDP – and force governments to make odious decisions between households . and industries. Price increases alone will make some major European industries that rely on gas uneconomic.
Russia in the long run will be the loser. Europe will never allow itself to become so dependent on Russian energy. It is scrambling to procure alternative gas from the US, Qatar and elsewhere and is scrambling to buy floating LNG terminals and build new onshore terminals along with new storage and distribution networks.
Decarbonisation, the engine of European energy policies in recent decades, takes a back seat to the imperative of energy security.
There is no alternative for the EU but to accept that Russia is no longer and never will be a reliable source of supply.
For Russia, this will ultimately mean that an important source of its income – it is the world’s second largest gas producer – will dry up. It would take massive investments in LNG plants and pipelines that would likely be sub-economic at best to ship Russian gas to those markets, such as China, that would accept it. Even so, these potential customers are unlikely to replace lost EU demand.
The situation for Europeans could be worse. While earlier this year China was buying as much gas as it could after experiencing its own energy crisis, it appears to have scaled back its purchases and some Chinese traders are selling gas to Europeans and others.
This is attributed to the effects of China’s “zero COVID” lockdowns, which have slowed its economy and reduced the energy consumption of its industries. An increase in domestic coal production as China tries to reduce its reliance on energy imports could also be a factor.
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If China had maintained the previous scale of its purchases, the already very tight LNG market would be even more constrained and the amount of uncontracted gas available to Europe would be even smaller.
In any case, for the EU the relationship with Russia and state-controlled Gazprom has passed the point of no return. There is no alternative but to accept that Russia is no longer a reliable source of supply and never will be again.
This acceptance will almost certainly mean significant economic pain and hardship for households this northern winter, but will accelerate the rise of renewables and more disparate sources of gas and other energy in the future while reducing Europe’s demonstrated vulnerability of becoming so dependent on a single supplier.